Note Tango's comments that we need to up the rate of postings. Would be useful to have Somar weather updates every day at this time of year, given their importance in pricing.
Commerzbank cautioned against expecting hefty gains in arabica coffee futures to stick, saying that the dent to demand prospects from the Covid-19 pandemic still overhangs the market.
Arabica coffee futures for September soared 6.5% in New York’s ICE exchange to 108.35 cents a pound in the last session, their highest finish in two months, and stopping 0.14 cents from ending above their 100-day moving average for the first time in three months.
“Market participants attribute the price surge to a stronger Brazilian real – the currency of the leading arabica producer and exporter – and to short covering,” Commerzbank said.
A stronger real cuts the competitiveness of Brazilian exports, while managed money held a net short of 24,776 lots in arabica coffee futures and options as of Tuesday last week, the highest but one in eight months, latest regulatory data show.
“What is more, ICE-certified coffee stocks dipped below 1.6m bags – their lowest level in nearly three years,” Commerzbank said.
Exchange stocks shrank by 16,599 bags in one day to 1.599m bags, data on Friday showed, with inventories easing a further 665 bags since, and now stand more than 430,00 bags – or 21% - lower over 2020.
Inventories are viewed as having been sapped by a quest for arabica supplies at a time of weak Brazilian stocks, ahead of the rebuild prompted by the ongoing record harvest, and soft supplies from Central America too.
‘Comparison is unfair’
However, Commerzbank added that “given the ongoing record harvest in Brazil and lower out-of-home consumption because of the corona pandemic, it is doubtful whether the inventory reduction and price rise will prove lasting”.
It noted that while the Brazilian harvest was proving slower than last year, “the comparison is unfair because 2019 was a low-yield year”, meaning fewer beans to collect.
Merchant I&M Smith – while too noting that key Brazilian co-operative Cooxupe pegged at 52.2% harvest progress on its plantations as of Friday, down from 75.4% a year before – said that “the slowdown in harvest pace this year can be attributed to the biennially bearing larger nature of the Brazil coffee crop.
“The prior larger biennially bearing larger crop in 2018, was around 55.7% harvested by the same time in the year,” meaning that the harvest for 2020 “which is acknowledged to be a record crop year, is well on track, with weather similarly conducive”.
However, other investors cited the latest round of fears of a frost in Brazil as also spurring the last session’s gains – and with these concerns yet to be allayed.
Somar Meteorologia said it was “monitoring a cold front expected next week”, with data from national weather institute Inmet showing cold air reaching most areas of the country.
Nonetheless, ahead of updated weather outlooks, arabica coffee for September shed 1.4% to 106.85 cents a pound in early deals on Thursday.
In London, robusta coffee for September, which gained 3.0% to a four-month closing high of $1,357 a tonne in the last session, stood flat in morning trading.
The bean remains one of the best performing agricultural commodities this month, with gains of 14% more than twice of those of arabica beans, and headway of some 5% in the Bcom ag subindex, with headway seen as reflecting demand ideas.
“Robusta tends to be drunk more at home, unlike arabica, and is thus profiting from the current crisis,” and the setback that Covid-19 has wrought on coffee bar sales, Commerzbank said.